The federal government's pledge to pay billions in compensation to farmers, auto companies and fish processors in the wake of recent free-trade deals is bad economic policy, a new report argues.
"The federal government committed assistance primarily for political reasons; when it needed support and could not find another solution, it offered compensation," economists Dmitry Lysenko and Saul Schwartz say in a study being released on Tuesday by the Institute for Research on Public Policy.
"Whether the assistance made economic sense was not a major consideration."
They say Ottawa should spend its limited resources to help millions of workers adjust to such things as globalization, climate change and technological disruption – not just the relatively few affected by trade agreements.
"If you just think about the economic rationale for these [compensation] programs, there isn't one," Mr. Schwartz, a professor at Carleton University's School of Public Policy and Administration, said in an interview.
"What they do is create inequity because lots of workers and firms outside those sectors are harmed, but will receive no compensation."
The authors take particular aim at $4.3-billion in compensation for farmers in the supply-managed dairy, chicken and egg industries – a package that includes income guarantees for dairy farmers with an average net worth of $2.7-million and farm income of $120,000 a year.
The bailout promise was announced at the conclusion of the Trans-Pacific Partnership negotiations in early October – just weeks before the Oct. 19 federal election. Dairy farms in particular are concentrated in the voter-rich provinces of Ontario and Quebec.
Ottawa has also promised to create a $400-million fund for Newfoundland and Labrador's fish-processing industry and put an extra $1-billion over 10 years into an auto innovation fund.
Chrystia Freeland, the new Liberal government's International Trade Minister, has promised that Ottawa will review the billions that the Conservative government promised to farmers and auto makers.
The package for farmers is aimed at helping them adjust to both the 12-country TPP agreement as well as the Canada-Europe free-trade deal. Both deals have been negotiated, but are not yet ratified.
These funds are "unlikely to be effective in maintaining the viability of those sectors" and "effectively stifle incentives … to change," the report says.
"That's a bad deal, for sure," Prof. Schwartz said. "It's overly generous and it's unprecedented, in that it's guaranteeing that their incomes won't go down for 10 years. Furthermore, they're rich."
The study pointed out that the economic effects of the TPP deal and Canada-Europe Comprehensive Economic Trade Agreement are spread over a long phase-in period, generally giving industries ample time to adjust.
"Over all, we have little reason to believe that Canada faces a serious challenge of adjusting to [free-trade agreements]," the report says.
One-off assistance to one sector may cause others to demand similar treatment.
The authors say the Liberal government should look at reforming employment insurance and other programs to help Canadian workers adjust to structural change. But they offer few details.
And they say the country does not need a "new stand-alone" trade-adjustment assistance (TAA) program, such as the ones that exist in the United States, Europe and South Korea. The report points out that these programs are arbitrary and are not "particularly effective in encouraging economic adjustment."